9.30 Nespresso S.A.

Nespresso, a dedicated espresso machine and coffee pod system, is now an important part of the Nestlé empire, {10} with sales around US$ 1.7 billion. {7}

It was not always so, and indeed Nespresso's history is one of sustained and often unsuccessful marketing over a long period of time. Eric Favre at the Nestlé research lab filed the first patent in 1976, when Nestlé dominated the instant coffee market with Nescafé but was weak in the roast and ground coffee sectors. Favre overcame various technical problems, but attempts to enter the restaurant and office market were unsuccessful. In 1986, Nestlé set up Nespress SA, an independent company, but sales were still disappointing until Jean-Paul Gaillard was appointed CEO and changed the business model:

1. Focus was shifted from offices to affluent households.
2. Coffee was sold by direct mail as 'pods', capsules that could be inserted into the coffee machines with a minimum of fuss and coffee wastage.

When that proved successful, Nespresso:

1. Started selling online.
2. Built coffee dispensing stores at prime locations.
3. Launched its own 'boutiques' in up-market departmental stores.
4. Established a Nespresso community through an Internet club and then Facebook, MySpace and Twitter.

Finally, in 2004, Nestlé created a second product, Nescafé Dolce Gusto, for the mid-tier mass market.

The Long Haul

Nespresso was for long a considerable drain on Nestlé resources, and would have probably been closed down if not separate from its parent. The milestones were:

1976: Nespresso system patent filed.
1982: Focus on restaurant and office market.
1986: Separate Nespresso SA company formed.
1988: New CEO overhauls marketing strategy.
1991: Nespresso launched internationally.
1997: First advertising campaigns started.
1998: Focus on ecommerce with web site redesign.
2006: George Clooney retained as spokesperson.
2008: Sales 2000-8 average 35% yearly and attain $1.9 billion.
2012: Extend market with cheaper coffeemakers. {17}
2013. 30% of the world's 2,400 Michelin-starred restaurants use Nespresso. {18}.

Points to Note

1. Importance of identifying the proper market segment.
2. New ideas that came with unbundling Nespresso SA from Nestlé.
3. Large markup: 7-8 times the price of Columbian ground coffee in French supermarkets. {6} Or more. {12}
4. Closed system: machines only take Nespresso pods; exclusive Nespresso boutiques. {11}

Questions

1. Give a short history of Nespresso.
2. What suggested that Nespresso would be more appropriately marketed to affluent households?
3. What Internet marketing techniques proved successful?
4. What enabled Nespresso to survive so long as a struggling part of the Nestlé empire?
5. Construct a Osterwalder and Pigneur model for the current Nespresso business.

Sources and Further Reading

1. Results 2006 — Nestlé Nespresso Positioned to Double its Business. PR Newswire. March 2006. Public Relations pitch.
2. Nespresso. GMF. April 2006. Glossy conference pitch with statistics.
3. There is No Lack of Business Model Innovation Ideas by Alexander Osterwalder. Business Model Alchemist. March 2009. Introduces Nescafé Dolce Gusto.
4. Nespresso is still a beautiful model. Business Models Inc. October 2009. Nespresso uses different market channels to launch its products.
5. Nespresso. Business Model Inspiration. October 2009. Example of BMG (reference 13) in action.
6. The sweet smell of success at Nestlé by Matthew Saltmarsh. NYT. November, 2009. Nespresso sold in 50 countries and employs more than 2,500 people.
7. Designing Espresso Innovation by Tim Kastella. Innovation Leadership Network. February 2010. Lengthe and uncertainty of marketing.
8. Nespresso: victim of a low-end disruption? by Philippe Silberzahn. Philippe Silberzahn. April 2010. Threats to Nespresso: competition, environment and snobbish image.
9. Nestle sues Sara Lee over Nespresso coffee makers. Yahoo Finance. June 2010. Nesspresso protecting its patch.
10. Nespresso's Business Model. Summerrainx. July 2011. Current success and statistics.
11. Why Nespresso is the Next iTunes by Dominic Basulto. BigThink. November 2010.
12. Pod of Gold by Joshua Levine. Time Magazine: Business. March 2011.
13. Business Model Generation: A Handbook for Visionaries, Game Changers, and Challengers by Alexander Osterwalder and Yves Pigneur. Wiley 2010. 236-7.
14. Nespresso Professional. Company site for professional service.
15. Nespresso stirs up US potential by Haig Simonian. FT. March 2011.
16. Coffee Wars III —The Empire Strikes Back by John Revill. The Source. July 2011.
17. U beauty: Nespresso’s new U coffee maker reviewed by Leigh D. Stark. Gadget Guy. July 2012.
18. The rise of the coffee pod machines. Guardian. April 2013.